The Carbon Border Adjustment Mechanism (CBAM) is an EU policy that puts a carbon price on certain goods imported into the EU, mirroring the carbon costs faced by EU producers under the EU Emissions Trading System (ETS). Its "scope" defines which goods, emissions, and trade flows are covered.
Under Regulation (EU) 2023/956, adopted in May 2023, the initial product scope covers six sectors judged to carry high risk of carbon leakage:
- Cement
- Iron and steel
- Aluminium
- Fertilisers
- Electricity
- Hydrogen
Coverage extends to selected downstream products such as screws, bolts, and certain steel and aluminium articles listed in Annex I of the regulation, identified by CN (Combined Nomenclature) codes.
In terms of emissions scope, CBAM captures direct (Scope 1) embedded emissions from production processes for all covered goods. Indirect (Scope 2) emissions from electricity used in production are included for cement, fertilisers, and certain iron and steel and aluminium products, with methodology set out in implementing acts.
Geographic scope: CBAM applies to imports from all third countries except those participating in or linked to the EU ETS — currently Iceland, Liechtenstein, Norway, and Switzerland — plus certain territories such as Büsingen, Heligoland, Livigno, Ceuta and Melilla.
The mechanism entered its transitional phase on 1 October 2023, during which importers must report embedded emissions quarterly but pay nothing. The definitive regime begins 1 January 2026, when importers (as "authorised CBAM declarants") must purchase CBAM certificates priced on the weekly average ETS auction price, with free ETS allowances for covered sectors phased out in parallel through 2034.
The European Commission is mandated to review extending scope to other ETS sectors and to indirect emissions more broadly before the definitive phase. A February 2025 Commission "Omnibus" simplification proposal sought to exempt small importers (below roughly 50 tonnes per year) while preserving coverage of about 99% of embedded emissions.
Example
From 1 October 2023, an Indian steel exporter shipping rebar to Germany falls within CBAM scope and must provide embedded-emissions data to the EU importer for quarterly reporting.
Frequently asked questions
Cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen, plus selected downstream products listed by CN code in Annex I of Regulation (EU) 2023/956.
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